EDB demands cut in WHT on engineering industry exports

The Engineering Development Board (EDB) has strongly proposed to the Federal Board of Revenue (FBR) to amend the Income Tax Ordinance, 2001 to reduce the rate of withholding tax from one percent to 0.5 percent on exports of the engineering industry.
Sources told Business Recorder here on Saturday that the Federal Board of Revenue (FBR) has received a proposal from the EDB on reduction in the rate of withholding tax to 0.50 percent on exports made by the engineering industry.
According to the EDB, section 154 of the Income Tax Ordinance, 2001 deals with withholding income tax on exports which is to be deducted by the authorised dealers in foreign exchange at the time of realisation of foreign exchange proceeds on account of export of goods at the rates specified in Division IV of Part III of the First Schedule to the Ordinance. As per the Schedule, the rate at which tax so deducted is 1 percent of the export proceeds. This deduction is considered payment towards final liability of income tax. Since this deduction is mandatory and considered final payment, the exporters of engineering products have to bear it even if they are exporting on marginal profits or making a loss.
Such situations of marginal profits or making loss arise especially in cases where market entry barriers are to be overcome through reduced first cost offers as a marketing tool or through sunk investments in marketing and creating after sale service set-ups. Even otherwise, if exports of products of engineering industry are to be encouraged and promoted, the government needs to extend all possible fiscal incentives in this regard.
The reduction in rate of withholding income tax out of realisation of foreign exchange proceeds of engineering industry exports would be a desirable step in this direction. It is, therefore, proposed that Division IV of Part III of the First Schedule to Income Tax Ordinance, 2001 may be suitably amended to reduce the rate of withholding income tax to 0.5 percent on exports of engineering industry, EDB added.